Health Saving Accounts – The Tiniest Change Could Completely Fix Health Care

Regardless of product or service, this economic truism always applies – Prices go down when the consumer is able to buy competitive products based on price and quality.

Sounds simple right? And so obvious as to be part of common sense.

And yet when it comes to health care, Congress doesn’t seem to recognize this simple adage and is missing out on the obvious solution to out-of-control health care pricing.

Let’s lay this out. It is not possible right now to call up a doctor, say “I need a colonoscopy, how much do you charge and how are you rated in your field.” 

Try it, I dare you. 

How do we shop for our “regular” doctor?

Is there any chance of knowing how his prices compare with other doctors? Or any chance of knowing how good he is, without a referral from a friend who is likely as clueless as you are? How likely are you to judge a doctor based on the carpet and the plants in his reception area, and the niceness of the receptionist when you walk in?

Is there any chance of knowing how his prices compare with other doctors? Or any chance of knowing how good he is, without a referral from a friend who is likely as clueless as you are? How likely are you to judge a doctor based on the carpet and the plants in his reception area, and the niceness of the receptionist when you walk in?

No, you cannot shop based on price and quality, the industry does not allow it. First, the insurance company pays for everything, any pricing you happen to see is incidental because it doesn’t come out of your pocket. And if the company you work for buys your insurance, then they are almost certainly overpaying because the “one size fits all” plan is very inefficient. And if you happen to be a business shopping for company plans, you may notice the premiums are way higher than the aggregate cost of the individual plans. In any event, you DO pay for this in your insurance premiums or in the latter case as lost income that your employer doesn’t pay you.

And of course, when doctors raise their prices, there is no one to protest, because insurers, despite their protests to the contrary, make more money when health care costs more. Their markups are 40% whether health care is cheap or expensive. In other words, NO ONE is shopping based on price and quality. So prices continue to spiral upward.

What is the solution?

Allow individuals to buy their own health insurance from their Health Savings Account (HSA). 

The HSA was created in 2003 under the Bush Administration to replace an older medical savings account system. It is “tax advantaged” and designed to assist people who buy health insurance with high deductibles. Unfortunately under the current regulations you cannot use this money to actually pay for your insurance.

We must modify this such that the consumer can use their tax-advantaged HSA to pay their insurance premiums. This together with some motivating allowances (see below), would cause prices to start spiraling down.

What would this do?

It would encourage employers to pay money into the employee’s HSA instead of buying company-wide insurance. As we mentioned above, company insurance plans are a very expensive racket. Costs can be more than double the cumulative price of individual plans for your employees, and companies are powerless to economize or cut costs. 

And yes, I’ll say this now. Companies should NOT be buying insurance for their employees. It interferes with the marketplace and separates the consumer from the price and quality decision. Companies should be contributing to an HSA plan under the control of the employee.

The result is that a great many more people would be shopping for health care based on price and quality. Prices will go down. Simple.

It reduces costs for the employer, and it takes away the issue of companies having to provide coverage for birth control and abortion if they do not wish to provide it.

Another MAJOR benefit – people will think about their health and how to manage it more often and with more focus. Thinking is doing, we will be a much healthier nation.

Motivation for Individuals?

Yes, this is more work and more complexity for the individual, and the fall in pricing will not be a day by day thing. So what would motivate individuals to want such a new responsibility? 

Since it is tax deductible, it is effectively a discount on goods and services in the marketplace. What if we were to add some benefits to this? What if we were to say that if you have your insurance covered and the deductible covered, then perhaps money leftover could be used to pay for other

What if we were to say that if you have your insurance covered and the deductible covered, then perhaps money leftover could be used to pay for other health-related items. Maybe your gym membership? Maybe an occasional therapeutic massage? Birth Control? Botox? Maybe the running shoes you need to continue your own personal health agenda? 

And of course, if you are saving for your gym membership or your botox, then you will be a great deal more frugal about insurance and medical expenses. Its a motivation to shop and get the best value for your money.

It would also simplify the provision of health care resources to people having trouble affording it. The government can merely transfer the money for the most cost-effective plans. Insurance companies would fight tooth and nail for the #1 spot of “most cost effective” in government terms, further reducing prices.  

If you want to improve quality of life, having an America focused on health is the best of all improvements. And this is an area where America really needs to pay attention.

I have proposed in previous articles some complementary solutions, separating insurance from maintenance to avoid a 40% markup on services you have to buy anyway, government comparisons of plans to remove complexity and uncertainty in the shopping process, and ‘X-prize’ programs to develop techniques to reduces costs. The HSA has the greatest pushback, because it is the real game changer, and can be done almost invisibly.

If you want the whole plan in all its glory, see below.